Explain the use of the Double Irish and the Dutch Sandwich by Google.

Eager to benefit from the economic growth and the job creation that foreign direct investments generate, many nations have adjusted their tax codes to entice multinational enterprises to establish new factories and regional offices within their borders. The ensuing “tax wars” between countries have led to wide variations in the tax laws of countries, which have allowed multinational enterprises to slash their tax burdens through the aggressive use of transfer pricing and the establishment of shell corporations in low-tax jurisdictions. The passage of the Tax Cuts and Jobs Act of 2017 by the U.S. Congress reflects the American government’s response in the tax war. When the previous comprehensive overhaul of the U.S. tax code—the Tax Reform Act of 1986—was passed, the United States statutory corporate income tax was the lowest of the OECD nations, at 35 percent. Fast forward to 2017:
that same U.S. corporate income tax rate was now the highest. In the interim, countries like Japan had cut their statutory rate from 42 percent to 31 percent; the United Kingdom, from 35 percent to 19 percent; and Ireland, from 50 percent to 12.5 percent. This disparity in statutory corporate income tax rates led to a variety of tax-driven corporate decisions harmful to the U.S. economy. Some American firms engaged in a practice known as tax inversion, whereby they merged with or acquired a foreign firm and then, through a series of paper transactions, legally became a subsidiary of a new foreign corporation in which they retained dominant control. For example, in 2016 Milwaukee-based Johnson Controls merged with Tyco, an Irish-based firm. Johnson Controls became a subsidiary of a new Irish company, Johnson Controls International (JCI), whose legal headquarters is in Cork, Ireland, but whose operational headquarters remain in Milwaukee. The benefit: JCI’s profits will be taxed at Ireland’s 12.5 percent rate rather than the then existing 35 percent U.S. rate. Several dozen major U.S. corporations transferred legal ownership, but not operating control, to foreign jurisdictions in the 2010s. Google is one company that has benefitted from Ireland’s pro-business tax code. It took advantage of two strategies created by international tax lawyers, dubbed the “Double Irish” and the “Dutch Sandwich,” which allowed it to shield \($19\) billion from taxation in 2016 alone. In 2006, Google entered into an advance pricing agreement with the U.S. Internal Revenue Service, establishing the terms under which it could transfer its intellectual property to its foreign subsidiaries. After signing the agreement with the U.S. tax authorities, Google licensed its intellectual property to Google Ireland Holdings, a wholly owned subsidiary. While established in Ireland, Google Ireland Holdings is managed in Bermuda, making it a nonresident corporation that is not subject to Irish taxation under Irish law. Google Ireland Holdings, however, is the owner of an Irish resident corporation, Dublin-based Google Ireland Limited—hence, the term “Double Irish.” Google Ireland Limited’s 2,000 employees sell advertising and provide support services to customers in Europe, the Middle East, and Africa, and account for about 88 percent of Google’s non-U.S. revenues.As we mentioned earlier, prior to the 2017 Act, American firms using a CFC could defer paying taxes on foreign earned income until they repatriated the earnings back to the U.S. In total, some \($2\) trillion to \($2.5\) trillion of such earnings remained overseas. The 2017 Act imposes a special tax on the existing deferred profits of foreign subsidiaries of American parent corporations of 15.8 percent on such earnings held in cash form and 8 percent held in illiquid form, to be payable over an eightyear period. Because high tech and pharmaceutical firms were the most aggressive users of the deferral rule, these new repatriation taxes will fall most heavily on them. Apple alone is expected to pay some \($38\) billion in repatriation taxes, while Microsoft will owe \($11-12\) billion. This repatriation tax falls on past deferred earnings. To lessen the benefits of companies transferring their intellectual property to foreign subsidiaries and to encourage them to leave such assets in the United States, the Act imposes a new, but lower tax on future income derived from such transfers. At 13.125 percent, the so-called global intangible lower-taxed income tax, or the GILTI-tax, is significantly less than the general 21 percent tax rate on most corporate earnings. The Act also contains new, complex “base-erosion” rules to reduce tax-driven transfers of property and assets to foreign subsidiaries designed to lessen the parent corporation’s U.S. taxes......